Fitch expects dividends of KazMunayGas to decline
Fitch Ratings agency has affirmed long-term foreign-currency issuer default rating (IDR) of National Company KazMunayGas JSC (KMG NC) at 'BBB-' with a stable outlook, the ratings agency reported July 1.
Fitch has also affirmed KazMunaiGaz Finance Sub B.V.'s
foreign-currency senior unsecured rating at 'BBB-'. A full list of
rating actions is at the end of this release.
The absence of an explicit state guarantee for a significant
portion of KMG NC’s debt prevents full rating alignment between
Kazakhstan and KMG NC, despite their strong strategic and
operational links.
Fitch rating approach is based on the expectation that the state
will provide sufficient and timely tangible support to the group
when needed.
NC KMG's 2015 performance in upstream, downstream and pipeline
transportation was weak, mainly due to sharply lower Brent, high
costs and lower dividends from joint ventures (JVs).
The company's Fitch-calculated EBITDA dropped by 65 percent and
dividends from JVs by about 40 percent, resulting in negative free
cash flow (FCF) of 261 billion tenges ($1.2 billion) in 2015.
The ratings agency expects dividends from NC KMG's upstream JVs and
affiliates to decline materially in 2016-2018 after previously
being among the group's key sources of cash.
In 2016-2017, Fitch expects lower payouts from TengizChevroil
LLP (TCO) and other JVs due to lower Brent, weaker cash generation
and TCO's multi-billion dollar expansion plans. The ratings agency
forecasts no dividends from Kashagan over the rating period as NC
KMG will start repaying its debt related to the Kashagan
acquisition after the project starts commercial oil production,
which the agency assumes will occur in 2017.
Positive rating action includes a sovereign upgrade resulting from
such factors as sustained recovery in external and fiscal buffers,
reduction of the non-oil deficit or substantial improvements in the
business climate and governance supporting diversification and a
sustained recovery in Kazakhstan's economy.
Negative rating action includes a sovereign downgrade resulting
from such factors as policy mismanagement, prolonged low oil prices
leading to a further weakening in the sovereign external balance
sheet or renewed weakness in the banking sector, which leads to
contingent liabilities for the sovereign.
Negative rating action also includes evidence of weakening state support, i.e. the state's failure to provide timely tangible financial support to the company, failure to improve the standalone credit metrics to those commensurate with a mid 'B' rating category oil and gas company, e.g. FFO-adjusted gross leverage of around 5x over the medium term.
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